Income tax collections: A very good lesson India can learn from Singapore

Source: CNA

Singapore shared that in FY2014/15 the Income tax collections grown by 16% and hit SGD 8.9 Billion. This is close to 2.1% of the nations GDP.

On the other hand, India tax collections for FY13/14 it stood at 242856 crores or SGD 53.9 Billion and budgeted for FY14/15 are at 63.1 Billion. From GDP point of ratio this is approx 3.3% of the GDP.

If we see the maximum income without paying any tax in Singapore is SGD 20,000(after deductions), and in India it is INR 250,000 or SGD 6,000.

However if we take the median income of a person in singapore, the effective tax rate is less than 10%. For the same, in India it is higher than 20%. By the way the common man on street in Singapore get "potable tap water, fresh air (except the few weeks of haze contributed by Indonesia) and never go hungry". On top of it there is heavily subsidised healthcare, education and scholarships. I didn't even have to mention the safety & security in the country.

I can easily say (my deduction could be challenged and I am no way posses any insider knowledge) the problem in India is the tax system itself is designed to be backwardish and not for an asian economy. We have to keep it simple and we have to make it easy, and transparent. Unfortunately the people who are honest and paying income tax will end up paying from their noses while those so called business man, big industrialists, and many other unorganized industries end up paying zero tax.

Finally the IRAS (Tax collection body in Singapore) shared another interesting fact.

" It cost 0.8c to collect $1 in tax revenue and they owe this to using technology and simplifying the process".

That's probably the best every anybody could hope for. But knowing Singapore, they would reduce it next year by few percentage points.

Income Receipts (Budget) - Singapore vs India

Source: singaporebudget.gov & India

Here is a small chart showing the receipts breakdown. I've used 2012 numbers (may be will update with 2013 after Indian budget) but the % terms gives us why Singapore is doing a great job.

It is about the coverage of the tax umbrella and not to depend on borrowings.

Singapore is considered as a "low tax nation" and the taxation is pretty low compared to India. Be it the individual income tax (max 20% vs 30+%; but reality is around 10% vs 30%); Services tax (7% vs 15%); Corporate tax. Whatever we say India is way higher compared to Singapore in terms of tax rates.

Then why the revenues are low compared to Singapore? Answer lies in the coverage. :)

Indian antiquated custom laws - Creating negative impression at the very first step.

Can you believe that you (if you are person of Indian origin, or Indian national or at times a human being) may end up paying "custom tax" on your engagement ring or gold chain when you enter India ?

Indian government introduced recently a law (40 years old law) which states allows a man to carry gold worth INR 10,000 and women to carry INR 20,000. So as per the current prices it turns out 3.5 gms and 7.1 gms for men & women. When this law introduced then the gold price was INR 88. So it used to allow more than 100 gms / men & 200 gms/women.

I am not asking for legally allowing to bring gold but after facing a "harassment from Indian customs" during my recent trip I am stunned now. I was stopped because my ring is more than 8 grams and I was asked to pay tax.

It shows again that there is no commonsense when it comes to Indian bureaucratic system and it simply works based on the whims and whits of some idiots sitting at top and some barbarians trying to ransack you officially @ customs.

The solution given by one of my friend was "to pay" or "to ask for a custom certification while leaving India". Apparantly this was mentioned in the website but no details given. When I requested the Customs officer he was dumb folded and he doesn't even know there is something that exists. So after spending couple of hours in one of the most expensive Airport in world (New Delhi) I left the country with a bitter taste.

The website and text is pasted for quick reference. If you manage to get it done or knows the procedure please share so the rest of folks can save their hard earned money.

http://www.cbec.gov.in/travellers.htm

OUT GOING PASSENGERS

          All the passengers leaving India by Air are subject to clearance by Custom Authorities. Only bonafide baggage is allowed to be cleared by passengers. There is a procedure prescribed whereby the passengers leaving India can take the export certificate for the various high value items as well as jewellery from the Customs authorities. Such an export certificate comes handy while bringing back the things to India so that no duty is charged on such goods exported by the passenger.

Singapore budget 2011

First time in my life I am waiting for the budget speech. I never waited so eagerly to see the ministers opening the sealed pack.
I hope the Gov would reduce the burden on residents by either reducing the tax bracket or by increasing the deduction limits. A lot of people think Singapore tax rate is one of the lowest in the world. Its true on the surface but when we look in to the details we'd know the fact. For example, when I was in India (with 30% tax rate) I never paid more than 10% of my savings thanks to various deductions. But in Singapore I often end up paying more than 20% of my savings.
Hope to see some relief..

EDIT:

Wooohhhoooooooo....Here goes the summary and dear minister, thanks for fulfilling some of my wishes :)

Good
* Personal income tax rebate of 20% (capped at 2000) for FY2011
* Rate cut up to 120,000 from FY2011
* No more TV lic
* Increase in employer CPF contribution (additional 0.5%)

Not so good


* CPF contribution limit increased to 5,000. (If you are earning 4.5K+ then your paycheck is reduced by100/month and including bonus it'll be reduced to a max of 1,650/year)
* No 'tangible' benefits to parents (may be I don't see the benefits given very useful)


Overall it's average budget before 'election' year and i fully support the decision of putting back the $4billion in to reserves. It's good thing to do..